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Is there an Exclusionary Effect of Retroactive Price Reduction Schemes?

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  • Lisa Bruttel

    () (Department of Economics, University of Konstanz, Germany)

Abstract

This paper presents an experiment on the loyalty enhancing effect potentially created by retroactive price reduction schemes. Such price reductions are applied to all units bought in a certain time frame if the total quantity passes a given threshold. Close to the threshold, the marginal price the buyer pays for the missing units up to the threshold is very low. A dominant firm can use this effect to exclude potential rivals from competition, which is why some jurisdictions consider retroactive discounts as unlawful. This study shows that there in fact is a loyalty enhancing effect of retroactive discounts and how it relates to risk preferences and loss aversion.

Suggested Citation

  • Lisa Bruttel, 2013. "Is there an Exclusionary Effect of Retroactive Price Reduction Schemes?," Working Paper Series of the Department of Economics, University of Konstanz 2013-21, Department of Economics, University of Konstanz.
  • Handle: RePEc:knz:dpteco:1321
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    More about this item

    Keywords

    rebates and discounts; consumer behavior; risk aversion; loss aversion; experiment;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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